Identify Theft Procedures and Sample Email Templates

The IRS has increased its efforts in catching tax refund fraud and tax-related identity theft. Clients may have returns sent to the Taxpayer Protection Division of the IRS. 

If a client’s Social Security number is compromised, it is usually found out in one of three ways.

1. 1. Tax return preparer finds a Fraudulent W-2 on Wage & Income Transcript.
   2. When E-filing return, tax return preparer receives a rejection notice.
   3. Client receives a notice after filing.

 

• The 1^st suspicion a Social Security number has been compromised is Fraudulent W-2’s:

We are seeing fraudulent W-2’s on Wage & Income transcripts.  W-2’s are filed to the Social Security Administration and TCD has a letter template to be mailed to them if fraud. Steps below will also need to be followed for the return filing to include Form 14039. If the W-2 has already been filed, there will be an e-file rejection that will appear. 

Steps to take if fraudulent W-2 on Wage & Income transcript.

1. Confirm with client that W-2 on Wage & Income transcript is fraudulent.  Tell them this is identity theft, and you will send them an email with instructions. (email template below)  

2.  Submit ticket to TCD to send letter to SSA to alert of fraudulent W-2.

3.  Fill out Form 14039 Identity Theft affidavit in return.   

4.  If received e-file rejection, follow the slide for e-file rejection as well. 

Email template for fraudulent W-2 on Wage & Income transcript:

Dear (Client): 

I am so sorry this is happening to you. As we discussed on the phone, there is a fraudulent W-2 filed under your Social Security number.   We suspect that you may be a victim of identity theft. Your return may have already been fraudulently filed. We will know if we receive an e-file rejection when we go to e-file.   

We will prepare a Form 14039 in your return alerting the IRS that your identity has been stolen and they will start an investigation. The investigation will take at least 180 days.  Our Tax Controversy Department will also notify the Social Security Administration of the fraudulent W-2.   

It is highly recommended that you contact one of the three major credit bureaus and put a “fraud alert” on your account. You may also want to request your credit report in order to verify you have not been a victim of any other credit fraud.  

Below is the IRS website with all the resources you will need. 

https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft 

Again, I am sorry this is happening to you. If you need assistance with anything, please let us know how we can help.

• The 2^nd suspicion a Social Security number has been compromised is an e-file rejection:

The return is electronically filed and rejects with a code indicating that the social security number submitted has already been used. The preparer will be notified from Sandy that the e-file was rejected. If there is ID theft, the reason will be the taxpayer or spouse social security number matches a tax return already filed.  

This is not to be confused with a dependent’s social security match. That could be caused by custody issues or a college dependent claiming themselves on a return.  

It could also have been caused by a typo of a social security number by another tax preparer. Since we do not know the reason, we need to treat it as identity theft. 

Please follow these steps if e-file rejection for previously accepted return:

1. Notify the partner and the Tax Controversy department that there is suspected identity theft. 

2. Check clients account to see if we have an acceptable POA on file. If not, request that a Form 2848 be prepared.  

3. Unclick the return from e-filing and set it up to be paper filed. 

4. Fill out Form 8949 with the reject code. 

5. If auto withdrawal is marked in the system, change payment to mail in with voucher. 

6. Fill out Form 14039, Identity Theft Affidavit in Axcess. 

7. Check that the transmittal letter/filing instructions show the return is to be paper filed and reads correctly. 

8. AIC is to call and gently break the news to the client. Set up a delivery method for the return. Inform the client that it will take a longer time to process the return since it is being paper filed and mailed into the IRS. An investigation into the identity theft could take up to 6 months! Inform the client that you will be sending an email with more information. 

9. AIC is to follow up with the email promised. Copy the partner and ADKF Tax Controversy department. (See sample email below) 

10. Return to Sandy and inform her that it is being paper filed. Let her know how the return is being delivered to the client. Note on the Route Sheet in the Special Instructions box and initial. 

                (If dependent is the one compromised, please see separate instructions.) 

Email template for e-file rejection of previously accepted return:

Dear (Client): 

I am so sorry this is happening to you. As we discussed on the phone, your tax return was e-filed and we received a rejection notice from the IRS saying your return had already been filed therefore we suspect that you may be a victim of identity theft. What do you do next? 

On our side, we will prepare your return to be filed using the traditional United States Postal Service. Our administrative staff will be arranging delivery procedures with you. Both of you will need to sign the return and mail it to the IRS as soon as you receive it. 

There will be additional forms with your return: Form 8948, which explains why the return is being paper filed not e-filed and Form 14039, for each of you, which will need to be signed and sent with the return. 

Now for your side, the next steps are not fun and are time consuming. Identity theft isn’t just your identity being stolen, but your time. The Form 14039 alerts the IRS that your identity has been stolen and they start an investigation. The investigation will take at least 180 days. You may hear from the ADKF Tax Controversy Department members during this time.  

It is highly recommended that you contact one of the three major credit bureaus and put a “fraud alert” on your account. You may also want to request your credit report in order to verify you have not been a victim of any other credit fraud.  

Below is the IRS website with all the resources you will need. 

https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft 

Again, I am sorry this is happening to you. If you need assistance with anything, please let us know how we can help.

• The 3^rd suspicion a Social Security number has been compromised is a notice is received:

A return is filed, and the client receives a notice from the IRS. The notice will request the taxpayer contact the IRS to verify their identity. The reason for the IRS notice is that the IRS suspects ID theft, not that there has been ID theft. Possible causes are estimated taxes or the bank account on the return do not match the IRS records.  

Here is a link that they can use to help them through the process: https://www.irs.gov/identity-theft-fraud-scams/identity-verification-for-irs-letter-recipients  

• For IRS Id Verify (5071 C letter, 5747C letter, 5477 C letter) we cannot handle these because of the required items that we may not have. 
• The client needs all these documents before verifying their identity.

What the taxpayer will need to verify their Identity: 

• Taxpayer’s personal account number from 1 of these:  
  • • Credit card  
    • Mortgage  
    • Student loan  
    • Home equity loan or home equity line of credit  
    • Car loan  
  • A mobile phone associated with Taxpayer’s name. 
  • Taxpayer’s 5071C letter, 5747C letter or 5447C letter  
  • The income tax return (form 1040,1040-PR, 1040-NR, 1040-SR, etc.) for the year shown on the letter.  
    • Note: A Form W-2 or 1099 is not an income tax return  

 

• • You must also have Taxpayer’s mailing address from your previous year’s tax return. 
• Email to send to client if ID verification notice received: 

Dear Client, 

While we are here for you and welcome your questions, we cannot handle identity verification notices as we do not have the information that the IRS requires to verify the taxpayer. 

To verify identity, it involves not only the last 2 returns, but also mortgage, credit card, student loan, car loan, or other information which we don't have. It also involves authentication by a text message to a cell phone registered in your name. 

Here is a link that you can use to assist through the process: 

https://www.irs.gov/identity-theft-fraud-scams/identity-verification-for-irs-letter-recipients 

To avoid this in the future, you may wish to apply for an Identity Protection PIN. You can find out more by checking out the article on the ADKF website, A Proactive Way to Protect Your Tax-Related Identity. 

If you have any questions, please feel free to contact myself, Manager or Partner.